Steven Cameron, Pensions Director at Aegon, comments:
“The Chancellor’s decision to increase the lower threshold of earnings on which employees pay National Insurance by £3,000 to £12,570 will be welcomed by many as helping mitigate the cost of living squeeze. There had been calls for the Government to defer the increase of 1.25% in NI, but Rishi clearly was not prepared to do so and instead has opted to make a major increase in the NI threshold. This will reduce the impact of the 1.25% increase for all, and will take anyone earning under £12,570 out of paying any NI contributions.
“However, increasing the threshold has longer term ramifications. Setting aside the 1.25% increase, which will be ringfenced to pay for social care and NHS support, raising the threshold will reduce the amount being collected in NI from today’s workers to pay for today’s state pensions. This will happen not just in the coming year but also in all future years, storing up longer term challenges for the funding of state pensions which are paid for out of NI on a pay as you go basis.
“There have been calls for the planned increase in state pension age to 67 by 2028 to be deferred, but having lower NI receipts will make that less affordable. Similarly, lower NI receipts could once again call into question the ongoing affordability of maintaining the state pension triple lock beyond this Parliament. Based on current predictions state pensioners could receive a bumper 8% plus increase in April 2023, which will take into account September’s projected inflation figure.
”Furthermore, at present, those above state pension age don’t pay NI on earned income so will not benefit from the threshold increase.”
“The government has been facing a barrage of calls to ease the cost of living squeeze, including to defer April’s 1.25% National Insurance increase for individuals and employers. But the increase in NI is going ahead at a time when prices are rising at the fastest rate for three decades, with the squeeze on income expected to worsen in the coming months. Employers will also face increased wage costs.
“However, the increase in NI is to provide further support for the NHS and to fund the government’s share of its new social care proposals. After the House of Lords rejected the draft Social Care funding Bill, finalising the deal must be an immediate priority for the Government.
“Despite all the many financial challenges we face as a nation, the government can’t ignore the need to prop up the NHS and implement a new social care deal with an appropriate cap on care costs. The health impact of the pandemic has shown just how important it is to have a high quality, properly funded care system, and this will have to be paid for.”
Matthew Connell, director of policy and public affairs of the Personal Finance Society, believes that with his changes today, Sunak has made the “tax and benefit system more complicated” as he comments:
“For far too long a solution to fix the care funding crisis was kicked into the long grass resulting in far too many people’s lifetime savings being obliterated by their care needs.
“The care funding requirements made many families whose loved ones had spent a lifetime carefully saving to pass on a legacy think ‘what was the point?’ when they saw the cash quickly disappear to pay for care.
“National Insurance already provided protection for unemployment, the state pension and healthcare so it was clearly identified as the simplest and quickest way for social care to be funded.
“The Chancellor has taken steps to offset the impact of National Insurance Contributions from next month for lower earners, by increasing the National Insurance threshold to £12,750 and an income tax cut of 1p in 2024.
“The Chancellor has addressed a key weakness of the care funding reforms, but in doing so, he has made the tax and benefit system more complicated.
“This underlines the fact that lower earners need help and advice on their finances and benefits more than ever before.”
Jason Mountford, Financial Planning Expert at Irwin Mitchell, says that when it comes to the Chancellor’s attempts to assist households feeling the inflation squeeze, “the results are underwhelming as he comments:
“As was widely predicted, fuel duty has been cut by 5p per litre, from 6pm tonight until March 2023. For the majority of motorists, this is unlikely to make a major difference to their household budget. On an average car holding 50 litres of fuel, a 5p reduction on petrol costing £1.70 per litre will reduce the cost of a tank by £2.50. This will mean a reduction in cost for most motorists of less than £100 per year.
“Compounding the underwhelming nature of the announcement is research from the New Economics Foundation, which suggests that the wealthiest 20% of households spend almost 5 times as much on fuel as the poorest 20%.”
“There were no further announcements to assist households with the rapidly increasing cost of energy. Instead, The Chancellor has announced the removal of VAT for energy efficient additions made by homeowners, such as solar panels and heat pumps.
“Sunak announced that this would save homeowners £1,000 on average, however given that the average cost to install home solar panels is £4,800, it is another measure that is unlikely to impact the hardest hit by the energy crisis.
“To calls from the gallery of “Is that it?” there was an announcement for lower income earners.
“Rishi Sunak stated that from July, the threshold for paying National Insurance Contributions will be aligned with the Personal Allowance. This increases the minimum threshold by £3,000 per year and will save lower income earners up to £330 per year.
“£330 is significantly less than the £1,300 that the average energy bill is expected to rise by this year, but it is at least a measure that is aimed towards the lowest income earners in the UK.
“Is Tinkering Enough? The broad takeaway for individuals is that these measures may take the edge off the financial pain of the cost of living squeeze, but it will be a long way off removing the pain entirely. Most households will notice little difference to their monthly outgoings as a result of the measure released today.
“Perhaps as a way to soften the reception, the Chancellor also dropped a surprise announcement that the Basic Rate of tax will be reducing from 20% down to 19%, but not until 2024.”
Tim Bennett, Head of Education at Killik & Co, said: “A fixation on Rishi Sunak’s increase in the national insurance threshold may distract attention from the potential impact of his baked-in “stealth taxes”. For example if CPI inflation remains at, or climbs above, today’s 6.2% the value of the fixed allowances he has already frozen over the next four years will be reduced substantially. To paraphrase Adam Kay, “This is going to hurt.”
Jake Bernardi, wealth planner at Succession Wealth comments:
“For a chancellor with very few levers to pull, he did a good job. It doesn’t feel like the right moment for major tax reform, so to tinker around the edges is not unwise.
“Capital gains is the elephant in the room. Tax relief on pension contributions for higher earners and inheritance tax reform were also notably absent, and likely to come under scrutiny.”
Jason Hollands, managing director of investing platform Bestinvest, comments: “In his Spring Statement today, the Chancellor sought both to partially alleviate the squeeze to the cost of living from rampant inflation as well as to reassert the Conservatives’ traditional tax-cutting credentials.
“The 5p cut to fuel duty will be welcomed by motorists, but given the scale of the surge in petrol prices over the last year, this is like applying a plaster to a major wound. The announcement that the National Insurance and Income Tax thresholds will be aligned at £12,570 in July is substantial, both simplifying the tax system and offsetting the planned NI increase for many people. Additionally, the Chancellor dangled the carrot of a penny cut in the basic rate of income tax to 19% for 2024.
“However, while considering these measures and the Chancellor’s repositioning as tax-cutter, it is important not to forget that most personal tax allowances will be frozen until at least 2026. When inflation is high and real wages are rising, this means that a great many people can expect to have a higher tax burden over the coming years than they do now.”
Ben Alcock, Chartered Financial Planner at Continuum, points out the lack of measures to help pensioners commenting: “The £3,000 increase to the National Insurance threshold will be a welcome relief for many lower-earning households and help them mitigate rising living costs.
“The 5p cut to fuel duty and the increase to the household support fund will also help many households struggling with the increased cost of living but will do little for the many pensioners that may be particularly vulnerable to inflation.
“With the suspension of the pensions triple lock, many industry commentators were hoping for additional measures such as a temporary increase to the State Pension rate to help pensioners with the unprecedented rise in their living costs.”
Comments by Katherine Arthur, Head of Private Client at accountancy firm haysmacintyre takes the view that the proposed changes will not actually have a significant impact on people, against the backdrop of the cost of living crisis and rising inflation as she comments:
“The Chancellor has made a strong statement today, declaring the biggest cut to taxes in a quarter of a century. But against a backdrop of rising inflation, the increase to National Insurance and frozen thresholds for the capital taxes, is the Government simply moving the deckchairs?
“The increase to National Insurance will still go ahead next month. And while the increase to the National Insurance threshold by £3,000 will be welcomed by many, until it takes effect in July people will still have to pay the additional 1.25% of the National Insurance/Health and Social Care Levy. Although championed as a tax cut, the threshold increase at the most will simply cancel out the effects of the National Insurance increase for the lower paid – coupled with a cut to income tax that is still two years away, it is unclear whether people will actually be better off as a result of this Spring Statement.
“Inheritance Tax and Capital Gains Tax are now delivering record receipts for HMRC – more and more people will find themselves having to pay these taxes as inflation skyrockets and the nil-rate bands remain frozen until 2026. Over the next four years, we will see the number of people paying Inheritance Tax and Capital Gains Tax only continue to rise.”